Managing human resources is one of the most important tasks carried out in every type of organization. For many small businesses, however, it can be difficult to access the high level of experience and skill needed to successfully manage those operations. Therefore, many small businesses are outsourcing their human resources functions to experts in the field.
Here is a look at why HR outsourcing is a critical component of success for modern small businesses.
What Is HR Outsourcing?
Human resources outsourcing is a strategy that enables an organization to entrust its human resources functions to an external company with expertise in this area. This allows small businesses to save money on hiring and training human resources staff while giving them the confidence of knowing they are in full compliance with all applicable regulatory and legal obligations governing data privacy, employee benefits administration, payroll processing and other important aspects of human resources.
Small businesses that are expecting to grow might consider outsourcing some human resources activities while keeping other functions in-house. This will allow them to maximize their internal capabilities and tap into external expertise as needed.
Outsourcing human resources allows small businesses to focus on their core business while letting experts manage matters such as recruitment, benefits administration and payroll management. It is becoming an increasingly popular approach, and there is no shortage of companies offering such services to organizations of all sizes.
Which Human Resources Functions Can Be Outsourced?
If a small business chooses to fully outsource its human resources functions, the vendor will assume all of their human resources-related responsibilities. However, companies may also choose to partially outsource their human resources, in which case the company will share those responsibilities with the vendor and share control over the functions and information in a collaborative relationship.
Outlined below are some of the human resources functions that are frequently outsourced by small businesses:
- Payroll services
- Temporary staffing
- Risk management
- Background screening
- Retirement planning
- Healthcare benefits
- Employee assistance
- Performance management
Types of Human Resources Outsourcing
Businesses can choose from one of several human resources outsourcing models. Here is a look at the three main approaches employed by businesses today.
Professional Employer Organization (PEO)
One possible arrangement involves having a Professional Employer Organization, or PEO, be responsible for all HR tasks. It is an approach that is commonly used by small and medium sized businesses. It involves entering into a co-employer relationship wherein the PEO is the employer of record and the business is the on-site employer.
This means the PEO is responsible for taxes and workers compensation, while the small business enjoys reduced financial liability thanks to the shared burden. PEOs can often access reduced rates for health benefits and retirement packages by combining employees from all their customers to take advantage of group rates.
Administrative Services Organization (ASO)
An Administrative Services Organization, or ASO, provides a business with administrative services such as performing direct deposits, filing payroll taxes and processing payrolls. Differing from outsourced payroll, an ASO will offer assistance with questions related to legal and compliance concerns as well as workers compensation, health benefits and insurance access.
ASOs focus mainly on the administrative side of human resources and do not have a co-employment relationship with the business that hires them.
Human Resources Organization (HRO)
Human Resources Organizations generally allow businesses to select which HR services they wish to outsource. An HRO will only manage certain functions, but they can form a co-managed relationship with the business in question in which HR functions are shared.
In cases where all of the human resources functions are outsourced, an HRO will assume full responsibility for all functions.
The Benefits of Outsourcing Your Small Businesses Human Resources Operations
Here is a look at some of the most compelling reasons to outsource the human resources activities of your small business:
Labor and employment laws are constantly changing, and it is essential to follow all of the updated rules impacting the workplace. Outsourced HR professionals are devoted to staying on top of the latest regulation changes and help businesses ensure they are compliant to avoid potentially expensive lawsuits. They can also maintain and audit the policies and practices of the company.
Reducing Administration Costs
Outsourcing human resources functions allows a company to save money on administration costs and gives employees more time to focus on growing the core business and addressing customer-facing duties. Many businesses can save a significant amount of money by outsourcing human resources compared to keeping these functions in-house.
Improving Access to Services
By outsourcing human resources functions, a company may be able to provide certain benefits and services that it could not have been able to offer on its own. Because human resources experts can benefit from economies of scale when they work with multiple clients, it can open up a small business to perks that they may not have otherwise been able to access.
Improving Employee Satisfaction
Human resources is a highly specialized and stringent area of business that encompasses a broad range of functions. Therefore, even companies that already have human resources professionals on their payroll often find that outsourcing some functions can help mitigate risk and alleviate the burden on their team.
According to the National Association of Professional Employer Organizations, employees of PEO clients note significantly higher scores on key metrics pertaining to employee satisfaction and confidence in management, including an intention to stay with their current employer for a longer period. This can be attributed to the access to higher-quality benefits and human resources technology afforded by outsourced human resources.
Attracting and Retaining Talent
Recruiting is one of the top challenges that small businesses are facing today amid a talent shortage. Smaller businesses tend to have a disadvantage when they are competing for top talent due to a lack of employer branding and employee benefit offerings that don’t match those offered by larger businesses.
A human resources outsourcing partner can help a small business improve its offerings and become a more desirable place for people to work.
Discuss the Needs of Your Small Business with the Premier Benefits Consultants
To find out more about how outsourced human resources and benefits technology can give your small business an edge, contact the human resources professionals at Business Benefits Group (BBG) today.